Flash Loan Exploits refer to a specific type of attack in decentralized finance (DeFi) where an attacker leverages an uncollateralized loan, acquired and repaid within a single blockchain transaction, to manipulate market prices or protocol logic for illicit gain. These exploits take advantage of vulnerabilities in smart contract design, oracle systems, or liquidity pool mechanisms.
Mechanism
The attack sequence typically involves: acquiring a large flash loan from a lending protocol; using this capital to manipulate the price of an asset on a decentralized exchange or oracle; executing a profitable trade, often against another DeFi protocol reliant on the manipulated price; and finally, repaying the flash loan within the same atomic transaction. If the transaction fails, all actions revert, incurring no loss for the attacker’s initial capital.
Methodology
The strategic defense against Flash Loan Exploits involves robust smart contract auditing, implementing time-weighted average price (TWAP) oracles instead of single-point price feeds, and designing protocols with sufficient slippage protection and circuit breakers. The framework emphasizes system-wide security considerations, including re-entrancy attack prevention and careful liquidity pool architecture, to prevent manipulation and safeguard digital assets.
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